Synopsys Inc. (NASDAQ:SNPS)

The provision for income taxes exhibits significant fluctuations over the observed period. Current income tax expense generally increased, while deferred tax expense consistently represented a benefit, though growing in magnitude. The net provision (benefit) for income taxes demonstrates a volatile pattern, shifting from a benefit to an expense and back again.

Current Income Tax Expense

Current income tax expense increased substantially from US$86.238 million in 2020 to US$177.738 million in 2021. This growth continued, reaching US$294.702 million in 2023, before accelerating further to US$475.688 million in 2024 and US$519.751 million in 2025. This indicates a consistent and accelerating increase in current tax obligations.

Deferred Income Tax Expense (Benefit)

Deferred income tax expense consistently resulted in a benefit, although the magnitude of the benefit varied. Beginning at a benefit of US$111.526 million in 2020, it decreased to US$36.913 million in 2022. The benefit then increased in absolute value to US$211.045 million in 2023, and continued to grow to US$375.970 million in 2024 and US$463.760 million in 2025. While always a benefit, the increasing negative amount suggests a growing impact from temporary differences or carryforwards.

Net Provision (Benefit) for Income Taxes

In 2020, the net provision for income taxes was a benefit of US$25.288 million. This shifted to an expense of US$49.155 million in 2021, then a substantial expense of US$137.078 million in 2022. The net amount decreased to an expense of US$83.657 million in 2023, before rising again to an expense of US$99.718 million in 2024, and finally decreasing to a benefit of US$55.991 million in 2025. This volatility suggests significant changes in the balance between current and deferred tax impacts year over year.

The interplay between current and deferred tax components results in a complex pattern for the overall provision for income taxes. The increasing current tax expense is partially offset by the growing deferred tax benefit, but the net effect fluctuates considerably, indicating potential shifts in taxable income, temporary differences, or tax planning strategies.

The effective income tax rate exhibits considerable fluctuation over the observed period. While the statutory federal income tax rate remained constant at 21.00% throughout, the effective income tax rate demonstrates significant variance, indicating factors beyond the standard corporate tax rate influence the company’s tax obligations.

Effective Income Tax Rate Trend

In 2020, the effective income tax rate was negative, registering at -3.96%. This suggests the presence of substantial tax benefits or credits that offset tax liabilities. A substantial increase is then observed in 2021, with the effective income tax rate rising to 6.10%. This increase continued into 2022, reaching a peak of 12.29%.

Following the peak in 2022, the effective income tax rate decreased to 6.43% in 2023 and 6.59% in 2024, remaining relatively stable. A further decline is noted in 2025, with the effective income tax rate falling to 4.02%.

The volatility in the effective income tax rate suggests the company’s tax position is sensitive to changes in its financial performance and the utilization of tax planning strategies. The negative rate in 2020 warrants further investigation to understand the nature and sustainability of the tax benefits realized. The increase from 2020 to 2022 could be attributed to changes in the mix of income sources, geographic distribution of earnings, or the expiration of certain tax benefits. The subsequent stabilization and decline in later years may indicate a normalization of the tax rate or the implementation of new tax planning initiatives.

Comparison to Statutory Rate

The effective income tax rate consistently deviates from the statutory federal income tax rate. This difference highlights the impact of various items, such as tax credits, deductions, foreign income, and state taxes, on the company’s overall tax burden. The magnitude of the difference varies significantly year to year, reinforcing the conclusion that the company’s tax situation is dynamic.

Continued monitoring of the effective income tax rate is recommended to assess the company’s tax efficiency and identify potential risks or opportunities related to tax planning.

The composition of deferred tax assets and liabilities exhibits significant fluctuations over the observed period. Gross deferred tax assets demonstrate a consistent upward trend from 2020 through 2025, increasing from US$795.89 million to US$2,256.96 million. This growth is largely attributable to increases in capitalized research and development costs, stock-based compensation, and deferred revenue. Conversely, deferred tax liabilities also increased over the period, but at a slower rate until 2025, when a substantial increase is observed. The net effect is a shift from a net deferred tax asset position to a net deferred tax liability position by 2025.

Deferred Tax Assets - Key Components

Capitalized research and development costs represent a substantial and growing portion of gross deferred tax assets, rising from US$118.86 million in 2020 to US$1,352.91 million in 2025. Stock-based compensation also contributes significantly, increasing from US$28.48 million to US$110.86 million over the same period. Tax loss carryovers and research and other tax credit carryovers remain material components, though their growth is less pronounced than that of capitalized R&D. Deferred revenue experienced a large increase in 2024 and 2025.

Deferred Tax Liabilities - Key Components

Intangible assets consistently represent the largest component of deferred tax liabilities, increasing significantly from US$45.92 million in 2020 to US$2,982.71 million in 2025. Operating lease right-of-use assets also contribute materially, remaining relatively stable until 2025, when they increased. Undistributed earnings of foreign subsidiaries represent a smaller, but consistently negative, component. The substantial increase in intangible asset related deferred tax liabilities in 2025 is a key driver of the overall shift to a net liability position.

Valuation Allowance

The valuation allowance against deferred tax assets has decreased over the period, from US$158.89 million in 2020 to US$38.90 million in 2025. This reduction suggests increasing confidence in the realizability of deferred tax assets. However, the decrease in the valuation allowance does not fully offset the growth in gross deferred tax assets, and the significant increase in deferred tax liabilities.

Net Deferred Tax Position

The company maintained a net deferred tax asset position from 2020 through 2024, peaking at US$1,210.70 million in 2024. However, in 2025, the net position reversed to a net deferred tax liability of US$893.48 million. This shift is primarily driven by the substantial increase in deferred tax liabilities related to intangible assets, outweighing the growth in deferred tax assets and the reduction in the valuation allowance.

The changes in deferred tax assets and liabilities suggest evolving tax planning strategies, potentially related to acquisitions, increased investment in research and development, and changes in the utilization of tax credits and loss carryforwards. The significant shift to a net deferred tax liability in 2025 warrants further investigation to understand the underlying drivers and potential implications for future tax payments.

Over the observed six-year period, significant fluctuations are evident in both deferred tax assets and deferred tax liabilities. Deferred tax assets demonstrate a generally increasing trend for the majority of the period, while deferred tax liabilities exhibit a more volatile pattern, with a substantial increase in later years.

Deferred Tax Assets

The value of deferred tax assets increased from US$497,546 thousand in 2020 to US$612,655 thousand in 2021, representing a growth of approximately 23.1%. Continued growth was observed through 2023, reaching US$860,914 thousand. A considerable increase occurred between 2023 and 2024, with deferred tax assets rising to US$1,247,258 thousand. However, a substantial decrease is noted in 2025, falling to US$112,159 thousand. This final decrease represents a significant shift and warrants further investigation.

Deferred Tax Liabilities

Deferred tax liabilities began at US$2,397 thousand in 2020 and increased to US$5,914 thousand in 2021. Growth continued, albeit at a varying pace, reaching US$13,455 thousand in 2022 and US$33,943 thousand in 2023. A moderate increase was observed between 2023 and 2024, reaching US$36,557 thousand. However, a dramatic increase occurred in 2025, with deferred tax liabilities rising to US$1,001,070 thousand. This represents a substantial change and a significant increase relative to prior years.

Net Deferred Tax Position

Initially, the company maintained a net deferred tax asset position. However, the substantial increase in deferred tax liabilities coupled with the significant decrease in deferred tax assets in 2025 resulted in a net deferred tax liability position by the end of the observed period. This shift suggests a potential change in the company’s future tax obligations and should be examined in detail.

The contrasting trends in deferred tax assets and liabilities, particularly the pronounced changes in 2025, suggest potential alterations in the company’s taxable temporary differences, loss carryforwards, or changes in tax rates. The significant fluctuations observed necessitate a deeper understanding of the underlying causes to assess the potential impact on future financial performance and tax planning strategies.

The information presented indicates a consistent pattern of adjustments to reported financial statement figures, specifically related to the removal of deferred tax assets or liabilities. These adjustments impact total assets, total liabilities, stockholders’ equity, and net income over the observed period from 2020 to 2025.

Total Assets

Reported total assets demonstrate a steady increase from 2020 through 2024, escalating significantly in 2025. However, the adjusted total assets consistently fall below the reported figures each year. The difference between reported and adjusted assets remains relatively stable from 2020 to 2024, but narrows considerably in 2025. This suggests a decreasing impact from the deferred tax adjustments on the overall asset base as the period progresses.

Total Liabilities

Similar to assets, reported total liabilities increase steadily from 2020 to 2024, with a substantial jump in 2025. Adjusted total liabilities also follow this trend, remaining below reported liabilities each year. The gap between reported and adjusted liabilities is relatively consistent until 2025, where it widens considerably, mirroring the trend observed in total assets. This indicates that the deferred tax adjustments are having a more pronounced effect on the reported liability position in the final year.

Stockholders’ Equity

Reported total stockholders’ equity exhibits consistent growth from 2020 to 2025. The adjusted stockholders’ equity also increases over the same period, but consistently remains lower than the reported equity. The difference between the two values is relatively stable from 2020 to 2024, but increases in 2025, aligning with the trends observed in assets and liabilities. This suggests the deferred tax adjustments are reducing the reported equity position.

Net Income

Reported net income attributed to the company increases from 2020 to 2024, then declines in 2025. The adjusted net income follows a similar pattern, but is consistently lower than the reported net income each year. The difference between reported and adjusted net income is relatively stable from 2020 to 2024, but decreases in 2025. This indicates that the deferred tax adjustments are reducing the reported net income, and the impact is lessening in the final year.

Overall, the consistent downward adjustments to assets, liabilities, equity, and net income suggest the presence of significant deferred tax items. The narrowing gap between reported and adjusted figures in 2025 could indicate a reduction in these deferred tax items, or a change in how they are being accounted for. The magnitude of these adjustments warrants further investigation to understand the underlying tax implications and their impact on the company’s financial position and performance.

The financial performance of the company, as reflected in the provided metrics, demonstrates notable shifts when deferred taxes are removed from the calculations. Generally, the adjusted ratios are lower than their reported counterparts, indicating that deferred tax assets and liabilities have a material impact on the initially reported figures. Several key trends emerge when examining the period from 2020 to 2025.

Profitability

Reported net profit margin exhibits volatility, increasing from 18.03% in 2020 to a peak of 36.94% in 2024 before declining to 18.89% in 2025. The adjusted net profit margin follows a similar pattern, though at lower levels, ranging from 12.31% to 30.80% over the same period. The difference between reported and adjusted margins widens in 2024, suggesting a significant impact from deferred taxes on reported profitability during that year. Both reported and adjusted profitability metrics show a substantial decrease in 2025.

Asset Efficiency

Reported total asset turnover shows an increasing trend from 0.46 in 2020 to 0.57 in 2023, followed by a sharp decrease to 0.15 in 2025. The adjusted total asset turnover mirrors this trend, consistently higher than the reported value, peaking at 0.62 in 2023 and also declining to 0.15 in 2025. The consistent difference between the reported and adjusted ratios suggests that deferred tax items influence the perception of how efficiently assets are utilized.

Financial Leverage

Reported financial leverage remains relatively stable between 1.64 and 1.71 from 2020 to 2023, decreasing to 1.45 in 2024 and increasing again to 1.70 in 2025. The adjusted financial leverage exhibits a similar pattern, consistently exceeding the reported leverage, indicating that the removal of deferred tax effects increases the perceived level of financial risk. The adjusted leverage also shows a decrease in 2024 and an increase in 2025.

Return on Equity (ROE)

Reported ROE demonstrates a strong upward trend from 13.54% in 2020 to 25.17% in 2024, followed by a dramatic decline to 4.70% in 2025. The adjusted ROE follows a similar trajectory, though at lower values, ranging from 2.97% to 19.51%. The substantial difference in 2024 and the significant drop in 2025 for both reported and adjusted ROE highlight the impact of deferred taxes and a potential shift in underlying profitability.

Return on Assets (ROA)

Reported ROA increases steadily from 8.27% in 2020 to 17.31% in 2024, before falling to 2.76% in 2025. The adjusted ROA mirrors this trend, consistently lower than the reported ROA, ranging from 1.81% to 10.83%. The consistent difference between the reported and adjusted ROA suggests that deferred tax items influence the perception of how efficiently assets generate profit. The sharp decline in both reported and adjusted ROA in 2025 is a significant observation.

In summary, the removal of deferred tax effects consistently lowers the calculated values for profitability and returns, while slightly increasing the perceived financial leverage and asset turnover. The year 2024 appears to be significantly impacted by deferred taxes, as evidenced by the widening gap between reported and adjusted ratios. The substantial declines observed in 2025 across all metrics warrant further investigation to determine the underlying causes.

The reported and adjusted net profit margins exhibited distinct trends over the observed period. Reported net profit margin generally increased, while adjusted net profit margin showed more fluctuation. A significant divergence between the two margins became apparent in later years.

Reported Net Profit Margin

Reported net profit margin demonstrated a generally increasing trend from 18.03% in 2020 to 21.05% in 2023. A substantial increase was observed between 2022 and 2023, rising from 19.38% to 36.94%. However, this was followed by a decrease to 18.89% in 2025. Overall, the reported margin experienced considerable volatility, particularly in the final observed year.

Adjusted Net Profit Margin

Adjusted net profit margin remained relatively stable between 2020 and 2022, fluctuating around 15% and increasing to 18.65%. A notable increase occurred between 2022 and 2024, reaching 30.80%. A significant decline was then observed in 2025, falling to 12.31%. This indicates a greater sensitivity to adjustments in net income compared to the reported margin.

Relationship Between Reported and Adjusted Margins

The difference between the reported and adjusted net profit margins was minimal in the earlier years (2020-2022). However, the gap widened considerably in 2024 and especially in 2025. This suggests that adjustments to net income had a progressively larger impact on profitability as reported, particularly in the most recent year. The substantial decrease in the adjusted margin in 2025, while the reported margin remained relatively stable, warrants further investigation into the nature of these adjustments.

Overall Trend

While both margins showed increases over the period, the adjusted net profit margin experienced a more pronounced decline in the final year. This suggests that factors impacting the adjusted net income, such as non-recurring items or specific accounting treatments, played an increasingly significant role in overall profitability, and that the 2025 results may be less representative of core operational performance than previous years.

An examination of the reported and adjusted total asset turnover ratios reveals distinct trends over the observed period. Both ratios generally increased from 2020 through 2023, followed by a decline in the most recent two years. The adjusted total asset turnover consistently reports a slightly higher value than the reported total asset turnover, suggesting the adjustments made to total assets have a positive impact on this efficiency metric.

Reported Total Asset Turnover

The reported total asset turnover ratio exhibited an increasing trend from 0.46 in 2020 to 0.57 in 2023, indicating improving efficiency in utilizing assets to generate sales. However, this trend reversed in 2024, decreasing to 0.47, and experienced a substantial decline to 0.15 in 2025. This significant drop in 2025 warrants further investigation to determine the underlying causes, such as a decrease in revenue or a substantial increase in total assets.

Adjusted Total Asset Turnover

Similar to the reported ratio, the adjusted total asset turnover ratio increased from 0.49 in 2020 to 0.62 in 2023, demonstrating enhanced asset utilization. The ratio then decreased to 0.52 in 2024 and fell sharply to 0.15 in 2025, mirroring the trend observed in the reported ratio. The consistency between the two ratios’ directional changes suggests the adjustments to total assets are not the primary driver of the recent decline.

Total Asset Growth

Reported total assets increased steadily from US$8,030,062 thousand in 2020 to US$10,333,131 thousand in 2023. A significant jump occurred in 2024, reaching US$13,073,561 thousand, and an even more substantial increase was observed in 2025, with total assets reaching US$48,224,461 thousand. Adjusted total assets followed a similar pattern. The large asset increases in 2024 and 2025 likely contribute to the decreased asset turnover ratios observed in those years, as the denominator in the ratio calculation increased substantially.

Relationship between Ratios

The difference between the reported and adjusted total asset turnover ratios remained relatively small throughout the period, generally ranging from 0.01 to 0.04. This indicates that the adjustments made to total assets have a consistent, but limited, effect on the calculated turnover ratio. The parallel declines in both ratios in 2024 and 2025 suggest that the decrease in asset turnover is not solely attributable to the asset adjustments.

In conclusion, while asset turnover improved through 2023, the substantial increases in total assets in 2024 and 2025 coincided with a significant decline in both the reported and adjusted total asset turnover ratios. This suggests a potential issue with revenue generation relative to the growing asset base, and further analysis is recommended to understand the factors driving this trend.

An examination of the financial information reveals trends in both reported and adjusted financial leverage over a six-year period. Reported total assets demonstrate consistent growth from 2020 to 2024, with a substantial increase in 2025. A similar pattern is observed in reported total stockholders’ equity, though the increase in 2025 is proportionally larger. Adjusted total assets and adjusted total stockholders’ equity follow comparable trajectories, consistently lower than their reported counterparts. Reported financial leverage fluctuates modestly between 1.64 and 1.71 before decreasing to 1.45 in 2024 and then rising again to 1.70 in 2025. Adjusted financial leverage exhibits a similar pattern, generally remaining above reported financial leverage and ranging from 1.71 to 1.80 before decreasing to 1.52 in 2024 and increasing to 1.65 in 2025.

Reported Financial Leverage

Reported financial leverage remained relatively stable between 2020 and 2023, oscillating between 1.64 and 1.71. A notable decrease to 1.45 is observed in 2024, suggesting a reduction in the proportion of assets financed by equity. This is then followed by an increase to 1.70 in 2025, indicating a return towards prior levels.

Adjusted Financial Leverage

Adjusted financial leverage consistently exceeded reported financial leverage throughout the period. It increased from 1.71 in 2020 to 1.80 in 2022, indicating a growing reliance on financial leverage when adjustments are considered. Similar to the reported leverage, a decrease to 1.52 is seen in 2024, followed by an increase to 1.65 in 2025.

Asset and Equity Trends

Both reported and adjusted total assets increased steadily from 2020 to 2024. The significant jump in both reported and adjusted total assets in 2025, particularly for assets, suggests a substantial event or series of events impacting the company’s asset base. Stockholders’ equity also increased, but at a slower rate than assets, contributing to the observed changes in financial leverage.

Adjustments Impact

The consistent difference between reported and adjusted figures for both assets and equity suggests the presence of items impacting the reported values. These adjustments consistently result in higher financial leverage ratios when calculated using adjusted figures, indicating that the adjustments reveal a potentially higher level of financial risk than initially apparent from the reported numbers.

The period between October 31, 2020, and October 31, 2025, demonstrates fluctuating performance in both reported and adjusted net income, alongside consistent growth in stockholders’ equity. This impacts the observed return on equity (ROE) metrics, exhibiting both increases and decreases over the analyzed timeframe.

Reported Net Income and ROE

Reported net income attributed to Synopsys increased steadily from US$664.347 million in 2020 to US$1,229.888 million in 2023, representing substantial growth. However, a significant decrease to US$1,332.220 million is observed in 2025. Correspondingly, reported ROE increased from 13.54% in 2020 to a peak of 25.17% in 2024, before declining sharply to 4.70% in 2025. This decline in ROE in 2025, despite positive equity, suggests a disproportionate decrease in reported net income relative to the equity base.

Adjusted Net Income and ROE

Adjusted net income follows a similar pattern to reported net income, increasing from US$552.821 million in 2020 to US$1,887.410 million in 2024, then decreasing to US$868.460 million in 2025. Adjusted ROE mirrors this trend, rising from 12.53% in 2020 to 24.26% in 2024, and then falling to 2.97% in 2025. The adjusted ROE figures consistently remain below the reported ROE, indicating that adjustments to net income have a dampening effect on the overall return metric.

Stockholders’ Equity

Reported total stockholders’ equity exhibits consistent growth throughout the period, increasing from US$4,907.404 million in 2020 to US$28,327.602 million in 2025. Adjusted total stockholders’ equity also demonstrates a similar upward trend, rising from US$4,412.255 million in 2020 to US$29,221.077 million in 2025. The adjusted equity values are consistently lower than the reported equity values, suggesting that certain equity items are being adjusted downwards. The substantial increase in equity in 2025, coupled with the decrease in net income, is a primary driver of the ROE decline observed in that year.

ROE Discrepancy

The difference between reported and adjusted ROE narrows in 2025, as both metrics experience significant declines. This suggests that the adjustments made to net income are less impactful when net income is already substantially reduced. The substantial growth in equity between 2024 and 2025 appears to dilute the impact of the net income decrease on both reported and adjusted ROE.

In summary, the period shows a strong growth trajectory in net income and equity up to 2024, followed by a notable downturn in 2025. The resulting ROE figures reflect this pattern, with significant declines observed in the final year of the analysis. The consistent difference between reported and adjusted ROE highlights the impact of adjustments made to net income and equity.

The period between October 31, 2020, and October 31, 2025, demonstrates fluctuating performance in both reported and adjusted return on assets (ROA). Reported net income and adjusted net income both generally increased from 2020 to 2023, followed by a decline in 2024 and a more substantial decline in 2025. Total assets, both reported and adjusted, exhibited a consistent upward trend until 2024, with a significant increase in 2024 and 2025. These movements have a notable impact on the calculated ROA figures.

Reported ROA

Reported ROA increased steadily from 8.27% in 2020 to a peak of 17.31% in 2024. This increase correlates with the growth in reported net income and reported total assets. However, a substantial decrease to 2.76% is observed in 2025, primarily driven by the significant increase in reported total assets coupled with a decrease in reported net income.

Adjusted ROA

Adjusted ROA followed a similar pattern to reported ROA, rising from 7.34% in 2020 to 15.96% in 2024. The decline in 2025 was even more pronounced, falling to 1.81%. This decrease is attributable to the larger increase in adjusted total assets relative to the decrease in adjusted net income. The adjusted ROA consistently reports a lower value than the reported ROA for each year.

Net Income Trends

Both reported and adjusted net income increased between 2020 and 2023, indicating improving profitability during that period. The substantial decline in net income in 2025, for both reported and adjusted figures, warrants further investigation to determine the underlying causes. The difference between reported and adjusted net income remained relatively consistent throughout the period.

Asset Trends

Total assets, both reported and adjusted, experienced significant growth in 2024 and 2025. The increase in 2025 was particularly substantial, with reported total assets increasing to US$48,224,461 and adjusted total assets reaching US$48,112,302. This rapid asset growth, combined with declining net income, is the primary driver of the reduced ROA in 2025.

The significant fluctuations in ROA, particularly the sharp decline in 2025, suggest a potential shift in the company’s asset utilization efficiency or profitability. Further analysis is recommended to understand the factors contributing to these changes and their implications for future performance.